HMI: Ten key findings about private healthcare in South Africa

Medical schemes and private hospitals have over the last four years been under the Competition Commission’s microscope. While a provisional diagnosis makes unhappy reading for consumers, diagnosis may well in this case be the first step to cure.

On 5 July 2018, the Competition Commission’s Health Market Inquiry, chaired by former Chief Justice Sandile Ngcobo, published its provisional report into the private healthcare market in South Africa. The public has until 7 September 2018 to comment on the 500-plus page report.

Below we have picked out 10 of the most interesting findings from the report – but for those with an interest in why their private healthcare costs are what they are, we highly recommend digging into the surprisingly readable report itself.

The inquiry confirmed what most consumers know – picking a coverage plan is not simple. They found:

The inquiry was also sympathetic to something else members of most medical schemes know just too well– navigating claims and knowing exactly what is covered and what is not covered can be a nightmare. Importantly, the inquiry goes further to say that members should know why some providers or networks were selected ahead of others. Between the lines, the report is something of a rallying call for scheme members to claim ownership of their schemes rather than merely being passive beneficiaries. Here’s the relevant paragraph:

“The inquiry found that information members receive is not necessarily sufficient to assess the quality of the services they receive from their medical scheme. The HMI found that some medical schemes provide some useful information to members with PMBs and chronic conditions. However, more could be done to ensure that members are well enough informed to navigate the system without facing unnecessary co-payments and to help members understand why the medical scheme did not pay a particular claim. Members should also receive information in relation to the providers the schemes contract with, in the form of outcomes measures and how the medical scheme selected the providers on their networks.”

The inquiry found that costs are really going up – consumers are not imagining it – so much so that it is hard to explain the increases. Here is the relevant paragraph:

“The Inquiry collected claims data for the period 2010 to 2014. Over this period, the average expenditure per private medical scheme member increased by 9.2% per annum. After adjusting for factors such as inflation, age, members’ plan type, gender, disease profile and membership movement, the unexplained (or residual) increase in spending per member was still greater than 2% per annum in real terms. To put this in context, 2% of spending amounts to around R3 billion in 2014 terms, that is R330 per beneficiary per annum that could not be explained by factors rationally expected to drive expenditure.”

While the cost increases are hard to explain, the inquiry did establish that the increases are mostly related to hospitalisation. They found:

“Most of this unexplained increase in claims cost can be attributed to in-hospital rather than out-of-hospital care, indicating a relative shift in claims costs towards hospital- based care that cannot be entirely attributed to the proxies for risk analysed by the HMI.”

This finding gels nicely with another finding indicating that doctors in South Africa send more patients to hospital than doctors in other countries. The suggestion is not that South African doctors are inherently different, but that a combination of poor regulation and market forces results in many people being hospitalised unnecessarily. They found:

“Absolute age-adjusted hospital admission rates increased significantly from 2010-2014 (the period for which we had data) and were higher than all but two of 17 OECD countries compared against. Specific discretionary surgical procedures were compared against comparable countries and utilisation rates in the private sector were higher than the average for 6 of the seven procedures studied, and the highest of all countries for 4 out of seven.”

The inquiry found that the patient to doctor ratio is roughly six times higher in the private sector than the public sector. They did not find that there is a shortage of doctors in the private sector, but did find that doctors’ time is being used inefficiently. Here’s the relevant quote:

“There are 2.12 medical practitioners per 1000 population in the private sector (0.92 GPs per 1000 and 0.83 specialists per 1000) compared to 0.3 medical practitioners per 1000 population in the public sector (…) The evidence of supply induced demand we have presented implies that there is time for doctors to over-service. This is particularly the case for specialists. This indicates that there is not an absolute under-supply of specialists but points rather to an inefficient use of their time.”

One sure sign that things are amiss in our private healthcare industry is that unusually high percentages of our medical scheme premiums ends up going to non-healthcare costs. As in other areas, the inquiry benchmarked South Africa against other countries, and found us wanting. Here’s the key finding:

“Non-healthcare costs for the ten largest schemes in SA range from 5% to 13.4% of gross contribution income compared to only 3% of GCI on average for OECD countries.”

The inquiry identified a number of underlying problems relating to a lack of competition in key areas in the private sector. A lack of competition is almost always bad for consumers and typically leads to higher prices than would be the case with more competition. Here is what the inquiry found in relation to medical schemes:

“Although there are 22 open medical schemes, this market is concentrated as two medical schemes constitute approximately 70% of total open scheme market as measured by number of beneficiaries. There is, however, one dominant open medical scheme, Discovery Health Medical Scheme (DHMS), that comprises 55% of the open scheme market, and it continues to grow organically and through a series of amalgamations with smaller restricted schemes. The Government Employees Medical Scheme (GEMS) is the largest restricted scheme and is second only to DHMS as measured by number of beneficiaries.”

While it is debatable how big a problem a lack of competition is in the medical schemes business (larger schemes might after all be able to negotiate better deals for their members), lack of competition is clearly a serious problem in the private hospital business. A few large hospital groups are essentially in a position where they can call the shots when setting prices since in most places they are the only game in town. The details are as follows:

“Three hospital groups, Netcare, Mediclinic and Life have a combined market share of 83% of the national South African private facilities market in terms of number of beds and 90% in terms of total number of admissions.”

In addition to a small number of companies dominating the private hospital and medical schemes markets, the inquiry also identified ownership patterns that may present conflicts of interest. The inquiry paints a complicated web, but here’s a quote that will give you an idea:

“The HMI has found that, in total, 56.9% of the total medical scheme beneficiaries under administration are administered by entities (administrators) in which the Remgro corporate group has a stake and 22.6% of the total medical scheme beneficiaries under administration are administered by entities in which the Afrocentric corporate group has a stake.”

In addition to its wide-ranging findings, the inquiry also makes several recommendations on how to go about more effectively regulating private healthcare in South Africa and ensuring consumers get better value for money. You can read the recommendations here.